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Shopping area in Belgrade, Serbia. With the conclusion of an IMF-supported program, the country is on track to catch up with Western Europe (photo: iStockPhoto/mareandmare)

Shopping area in Belgrade, Serbia. With the conclusion of an IMF-supported program, the country is on track to catch up with Western Europe (photo: iStockPhoto/mareandmare)

Serbia Completes Successful IMF Program

February 22, 2018

Serbia exits a $1.32 billion three-year program with the IMF on February 22 boasting outperformance on several of its goals. Concluding the program with flying colors is, however, only the first step in building a strong and vibrant economy able to compete globally, a recent IMF report observes. 

“The program has done much better than expected, overperforming many of its macroeconomic goals,” said James Roaf, head of the IMF’s Serbia team. “Serbia managed to dig itself out of a hole: after stalling for years in the wake of the global financial crisis, growth has now returned, coupled with rising investment and employment. A lot of work has been started to transform the country into a full-fledged market economy; these reforms need to be deepened after the conclusion of the program for Serbia to reach its full potential.” 

In 2014 Serbia’s economy was in serious trouble. Following the 2008 global financial crisis, the country’s economy stagnated, while weak public institutions, collapsing tax receipts, and overspending by government and state-owned enterprises resulted in a rapid buildup of public debt. Recognizing the unsustainable situation, the authorities adopted an ambitious program of fiscal adjustment, financial sector strengthening, and broad-based economic reforms. The IMF supported the program with economic advice and monitoring, along with precautionary financing.      

After three years of effort under the program, the economy has turned around. The fiscal accounts, with the second-largest deficit in Europe in 2014, boasted a surplus in 2017. Economic confidence has improved with stronger investment both from foreign and domestic sources. Unemployment is near historic lows, and falling. Banks are solid, and nonperforming loans are now below their precrisis levels.

But it’s vital to keep up the progress, the IMF says. The government should concentrate its efforts on helping the country catch up faster with its Western European peers. Reaching that goal is urgent to avoid the exodus of skilled Serbian workers in search of a better life. Here are the areas that need work.

  • Reform institutions and public services: Serbia must strengthen its institutions to support private-sector-led growth. Modernization should include tax administration and public services such as education and health. With more efficient management, public services could also mean better social protection. Financial market development must accompany broader use of the Serbian dinar instead of the euro. Labor market development must mean higher participation―especially of women―and less informality, and wide-ranging reforms to address the large gray economy. 
  • Overhaul state-owned enterprises: Serbia restructured its inefficient railway company, introduced better debt collection in the main electricity and gas companies, and successfully privatized others, such as the Smederevo steelworks, but many state-owned enterprises still need work for successful resolution or unsubsidized free market viability. The sectors most in need of overhaul are mining and petrochemicals: companies such as the Resavica coal mine, the RTB Bor copper complex, and petrochemical producers Petrohemija, MSK, and Azotara. Several state-owned financial institutions—for example, the BPS and Komercijalna banks and Dunav insurance company—are also in need of reform or privatization.
  • Improve the business climate: More investors are venturing into Serbia in the wake of better economic stability and a stronger regulation, but several problem areas still limit business investment and expansion. These include the tax and regulatory systems, multiple fees and charges, and delays and uncertainty in the judicial system.
  • Build better infrastructure: Better road, telecommunications, and energy networks will propel Serbia toward a standard of living that rivals that of Western Europe.
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